Here is the big warning to you, the investor. Never ever trust your investments to banks, national distributors or an institutional distributor of mutual funds. Want to know why?
This will not take long.
So, my client, who has just signed up with me, shared his mutual fund portfolio.
This is what it looks like.
As you notice, there are 34 unique schemes in the portfolio.
How did this portfolio come to be?
My client has a clear objective. He wants to retire in the next few years and the portfolio has to help him generate an income post retirement.
The client is a busy executive with little time that he can spend managing his own investments.
A big national distributor approached him and he got started.
This portfolio is a result of recommendations and investments over the last 2 years.
What’s the issue?
The 2 big issues in my view are:
- Having 34 mutual fund schemes in a portfolio is equivalent of holding a broad market index fund. Now why would you hold an equivalent of an index fund and pay active fund management fees. Beats me!
- 31 of the 34 schemes have insignificant presence in the portfolio. I mean even if they double, will it make a difference? Any scheme needs to have a reasonable allocation in the portfolio to be able to move the needle.
I told my client in jest, “your portfolio is big enough to make a ladder out of it and reach the moon.”
But frankly, I am appalled.
The portfolio noted above seems a result of greed gone unbridled, not of the client but of this national distributor.
In fact, this looks like an attempt by the relationship managers to fulfil sales targets and earn incentives and rewards.
I shouldn’t be surprised. They are just doing business – the business of distribution and earning commissions. Advice is an alien concept for them.
I have to warn you again!
You may remember that I have been vocal about avoiding banks for investment advice with a 10 feet pole.
I have to now add the other category – the National Distributors. These distributors are those, which have offices and branches spread across the country to sell mutual funds, insurance, loans, etc. They are always eager to sell something to you.
I now revise and repeat: Don’t take any investment advice from banks or national mutual fund distributors.
No, this is not a result of just one observation from one such national level distributor. There have been several instances observed over the last many years.
Clearly, the investor client is not at the centre of their thought process.
Why would you want to deal with someone who doesn’t keep you at the centre of the relationship?
I would be glad if you can share any personal experience and help spread the message. Thank you!